PepsiCo rejiggers pricing strategy to lure customers

Company says consumers are too accustomed to buying soda only when it's on sale

May 22, 2013|Reuters

Pepsi is re-thinking its prices in parts of the U.S. in an effort to break consumers' habit of buying soda only when it's on sale.

PepsiCo Inc said it is adjusting its pricing strategy for its drinks in some sections of the United States in an effort to wean consumers off a habit on only buying soda when it's on sale.

The strategy, which PepsiCo refers to as "hybrid everyday value," involves narrowing the gap between soda prices on holidays and regular days. It aims to lessen the discounts on holidays, when a 12-pack of 12-ounce cans can cost as little as $2.50 to $3, and lower prices throughout the rest of the year, when the same package can cost as much as $5.99.

The strategy has been tested with a few retailers in several markets and is rolling out a little more broadly this summer, said PepsiCo Americas Beverages CEO Al Carey this week at the Beverage Forum conference in New York.

"This is a very important idea," Carey said. "We are way too dependent on deep discounting 12- and 24-packs of our drinks during the holidays."

The entire industry sells half of its annual volume during roughly 12 weeks, he said, with the remaining 50 percent sold in the other 40.

"We have trained the consumer to wait until the price goes down and then go fill up your garage and then don't buy it again for a very long time until the price goes down," he said.

That has made the economics of the soft-drink business very challenging for drink makers and retailers, who often use discounts on soda to drive traffic. It costs companies more to store the big inventories they have built up, hurts employee morale and sometimes leads to unsold product.

"If you can get the discipline to execute this, I think it improves the profitability of the total business for us and also for our customers," Carey said.

Coca-Cola Co did not immediately respond to a request for comment on whether it was pursuing a similar strategy.